What is a second mortgage, and how can it fund your business?

A second mortgage in one sentence

A second mortgage is a loan secured over a property that already has a first mortgage, registered behind that first mortgage, so you can borrow against your equity without paying out or changing your existing loan.

Equity is the difference between what your property is worth and what you owe on it. If you own a home or commercial property that has grown in value, or you've paid down a good part of the loan, you have equity. A second mortgage lets you use it.

What "second" means

When more than one lender has a mortgage over a property, they rank in order. The first mortgage holder is repaid first if the property is sold or refinanced. The second mortgage holder is repaid next, from what's left. That ranking is the only thing "second" refers to. It's not a second-rate loan, and it doesn't replace your first.

Why business owners use a second mortgage

The big advantage is that your first mortgage stays exactly where it is. If you have a home loan with a good rate, a structure you're happy with, or a long relationship with your bank, you don't have to unwind it to get business funds. You also avoid the slow process of a full refinance, which commonly takes up to three months or more.

Common business reasons include:

• Paying an ATO debt or meeting a tax deadline
• Buying stock ahead of a busy period
• Funding materials or labour for a large contract
• Paying a deposit to buy a business or premises
• Clearing expensive short-term or cash flow debts
• Covering a gap while waiting for a sale, refinance or payment

How an Equity Tap second mortgage works

1. You tell us what you need. Amount, purpose, the property and how you'll repay.
2. We assess the security and the exit. We don't order a valuation before approval, and we don't need tax returns, BAS, profit and loss, an accountant's letter or bank statements.
3. You get an answer fast. Conditional approval can often be given on the phone and a term sheet issued in about 30 minutes once we have the scenario.
4. Consent and documents. Your first lender's consent may be needed. We'll tell you early if it is.
5. Funds. Eligible loans can settle in as little as 24 hours.
6. Repayment. The loan is repaid at the end of the term from your exit.

Equity Tap lends from $50k to $5m on second mortgages over residential or commercial property anywhere in Australia, for one to twelve months.

Repayments during the loan

You keep paying your first mortgage as usual. On the second mortgage, repayments are interest only, or interest for up to the first six months can be prepaid or added to the loan, so there are no scheduled payments in that period. Interest is not waived; it's either paid up front or added to the balance. See how prepaid interest works for a plain-English illustration.

How a second mortgage is repaid

Because our loans are short-term, the exit matters. Common exits are:

• A refinance with a bank or other lender
• The sale of a property
• Business cash flow over the term
• The sale of the business, equipment or stock
• Collection of receivables or a contract payment
• An insurance payout

Short-term means you only have the money for the time you need it. If you need it for two months, you take it for two months, not a 20 to 30 year refinance. Read more in our exit strategy guide.

For example

For example, an electrical contractor wins a large commercial job that needs cable, switchboards and extra staff before the first progress payment arrives. Their home loan has a good rate they don't want to lose. A second mortgage over the home for five months funds the start of the job, interest is added to the loan so there's nothing to pay while the work ramps up, and the loan is repaid from progress payments.

Second mortgage, caveat or first mortgage?

A caveat loan is a close cousin of the second mortgage, often used for very urgent, shorter needs. A first mortgage suits a property with no existing loan, or when you're paying out the current lender. Our caveat vs second mortgage guide compares them.

Ready to talk?

We're business owners lending to business owners, and we make sure you fully understand the loan, the costs and the exit before you proceed. Each loan is priced on your individual circumstances, aiming for the sharpest rate available for your situation. Call 1300 123 024 or apply online. You can also check your position with our equity calculator.

Business-purpose lending only. Approval, timing and terms depend on the scenario.

Frequently asked questions

Brokers: send the scenario through the Equity Tap broker channel and you will deal with the same lending team.